Merger Case
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Mannesmann acquired Orange on October 20, 1999. The agreement specified that Mannesmann would pay 6.4 in cash and 0.0965 newly issued Mannesmann shares for every orange share.
In terms of strategic rationales, firstly, to enter the UK market, the best way for Mannesmann is to acquire a company that has big market share. The customer is relatively hard to attract to a new operator. If the M enters the UK and develops its own customer, it has to attract the customer from other competitor, which means it has to provide low cost but better quality service. It is a painful process. From the wireless Players in the UK market, we see that Orange has the No.3 market share, which is 18%. This market share could help Mannesmann to directly enter the UK market. If it acquires orange, it could use the orange customer and fix assets, to further invest and develop new customer, which is far more easier than grow own customer. Secondly, the further strategic concern may be that the Mannesmann owns the market share of Germany, which makes it a goal for Vodafone. If Mannesmann acquires Orange, it is a good way to develop itself. This acquisition also provided Mannesmann a greater bargaining power when negotiate with Vodafone.
In terms of economic rationales, firstly, Orange is expected to grow rapidly in the future. Mannesmann was attracted by Oranges spectacular growth- it had a CAGR of 115% over 1994-1998. Secondly, this acquisition can create a great synergy. In the telecommunication industry, the operator needs to invest in fixed assets heavily. It could be a big cost to establish own network. This is a “save in cost” synergy